The UK government will require crypto firms to collect and report extensive personal data on every user and transaction starting January 1, 2026—a move drawing new scrutiny just as a major data breach exposes the risks of storing sensitive information in the crypto industry.
This article explains the new UK regulations, what firms and users must expect, and why the trust in KYC (know your customer) processes faces new challenges amid rising security concerns.
New Data Rules: What Crypto Firms Must Do
In a May 14 announcement, HM Revenue and Customs outlined strict new rules for all crypto companies serving UK users. Firms will need to collect each user’s full name, address, date of birth, and tax ID number. Legal entities must provide registration details and addresses. Every crypto transaction—including simple transfers between wallets—will be tracked and reported annually. Fines for non-compliance can reach £300 per user.
Who’s Covered and What’s Required?
The requirements apply to:
- Individual users: Full name, home address, date of birth, tax identification number.
- Businesses and organizations: Legal name, business address, company registration number.
- Every transaction: Includes wallet-to-wallet transfers, not just buy/sell actions.
Firms are expected to begin preparations immediately, well ahead of the 2026 enforcement date, to avoid compliance and reporting issues down the road.
Why the UK Is Tightening Crypto Oversight
Officials say the new regime aims to protect consumers, enhance tax compliance, and align the UK with international standards like MiCA in Europe. As Mark Aruliah of blockchain analytics firm Elliptic put it, the industry must “mature toward parity with traditional finance” and embrace transparency—even if it means higher costs, especially for startups.
“Any regulation is generally regarded as an additional cost burden to the industry but that has to be balanced against the benefits that it provides. These obligations are an expected next step and simply look to match the general reporting obligations in the tradfi space.”
— Mark Aruliah, Elliptic
Still, the move comes with timing that’s hard to ignore: just as the UK is mandating more personal data collection, one of the world’s largest exchanges is reeling from a high-profile user data breach.
Coinbase Breach Raises Doubts About Data Safety
Coinbase recently confirmed that overseas contractors, bribed by attackers, leaked sensitive customer data. Exposed details included names, addresses, emails, phone numbers, and—in some cases—partial Social Security numbers and ID documents. The breach affected less than 1% of Coinbase’s nearly 9 million users, yet the fallout is significant and has renewed fears about centralized data hoarding.
Crypto security investigator ZachXBT pointed out that red flags appeared months before Coinbase went public, with scams and social engineering targeting Coinbase’s infrastructure. One victim reportedly lost $850,000 after falling prey to a fake Coinbase support agent—demonstrating the real-world risks when sensitive data falls into the wrong hands.
The Real Trade-Off: Regulation Versus Privacy and Safety
The UK’s new regulations aim for transparency and consumer protection. But the Coinbase breach highlights a growing dilemma: is it possible for crypto firms to meet demanding KYC and data collection standards while also safeguarding user information from breaches, leaks, or insider threats?
As the UK’s new regime approaches, firms will face steep penalties for non-compliance, but the ultimate challenge is far more complex—proving they can keep users’ most sensitive information safe. The coming years will test not only regulatory frameworks, but also the industry’s technical and ethical commitment to privacy and security.
